1 Large-Cap, 1 Mid-Cap & 1 Small-Cap Share To Buy From ICICI Direct For Upside Of Up To 19%

1. SBI Cards and Payments Services:

The large cap stock, from the boutique of the country's leading state-run lender SBI, SBI Cards has been recommended a 'Buy' for a target price of Rs. 1200 in the short term of 12 months. The target set out by the brokerage firm ICICI Direct for the scrip implies gains of over 16 percent considering the stock's LTP of Rs. 1029.9.

SBI Cards is the country's second largest credit card issuing company i.e. into a high margin business with impressive return ratios. RoE stands at over 25%, while RoA is over 5%.

Q1Fy22 results show gradual recovery in operations

As per the brokerage, even despite the raging second Covid wave, the credit card issuing company posted gradual pick in operational performance. Notably some of the key performance measures such as NII, NIM that are indicative of revenues have been positive. Also the asset quality at the finance term lending institute improved.

Resilience in spends, digitization, improved asset quality to trigger SBI Cards' future price performance:

The brokerage firm believes that increasing spending together with the opening up of the economy will fuel the firm's business growth. Improved asset quality with lower non-performing assets (NPAs) and increase in revolver, EMI book to improve margins. Further, digitization will be a big positive for the credit card category. ICICI Direct sees return ratios to improve with RoE, RoA at 6.5%, 28.5%, respectively, by FY23E.

ICICI Direct values the scrip of SBI Cards at approximately 12x FY23E ABV to arrive at a revised target price of Rs. 1200 from Rs. 1100 earlier, said the brokerage report.

2. Indian Hotels:

For this hospitality scrip i.e. a mid cap stock, ICICI Direct has set out a target price of Rs. 170 to be realized in a short span of 12 months. This means a straight forward gain of 19.5% from the last traded price of Rs. 142.25.

Indian Hotels with a number of reputed brands in its portfolio including Taj, Vivanta, Ginger and SeleQtions enjoys a diversified position in the hospitality industry. Plus it also caters to the luxury segment in global locations such as the US, Maldives etc.

Cost optimization, ability to raise low-cost debt- Big positive for Indian Hotels

The company amid the disruption caused by the pandemic took the path of cost optimization in FY21 which will prove beneficial in the long run. The brokerage firm expects hospitality company's EBITDA margins to grow by more than 24% by FY23E. Also the company has a strong potential to raise loan involving low cost. Also, the company's balance sheet position will serve as a cushion to face the challenges ahead.

Operational loss narrowed in q1FY22 on a YoY basis; Covid second wave impact felt

Similar to the entire hospitality industry, Indian Hotels also bore the brunt of the second wave. Nonetheless the 2 positives noted by the brokerage include a sharp jump in average room rate by 45% YoY to Rs. 7024 per room. Operational loss also declined on a YoY basis to Rs. 149 crore.

ICICI Direct maintains its 'Buy' on Indian Hotels and value it at Rs. 170 i.e. 23x FY23E EV/EBITDA.

3. Siyaram Silk Mills:

ICICI Direct has maintained its 'Buy' call on the small cap scrip of Siyaram Silk i.e. into manufacturing of fabric and apparel. The company is selling its product line under various brands including Siyaram (flagship brand), Oxemberg, MSD and J Hampstead

Resilient Q1FY22 performance

Siyaram Silk Mills has logged QoQ de-growth of 54% to Rs. 233 crore. Nevertheless, gross margin improved. Lower other income led to decline in profitability with PAT down 78% QoQ.

ICICI Direct values the stock of Siyaram Silk Mills at Rs. 455 i.e. 14x FY23E EPS.

Demand recovery, low-leverage and cost rationalization to boost stock's performance

Post lifting or lessening of the coronavirus led restrictions as and when trade activities pick up pace, the company would benefit from recovery in demand.

Improved capital efficiency and profitability will enable the company to realize optimal RoCE of appx. 17% by FY23E.

25% cost savings through cost rationalization implemented in FY21 would help in improvement in EBIDTA margin going ahead.

Sales of Siyaram Silk for July 2021 month is trending close to 70% of the pre-Covid level and will further pick up pace during the festivities.

The company's debt/equity is now reduced to 0.2x in FY21 from 1.0x in FY12.

Buy Siyaram Silk For a target of Rs. 455, Says ICICI Direct

Disclaimer:

Stock market investment poses a risk of financial loss being high on risk. Also, note above stock picks are taken from the brokerage report of ICICI Direct and need not be construed as investment advice.

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